Elizabeth Public School District
Allowability of Title I, Part A Expenditures

FINAL AUDIT REPORT

Statements that managerial practices need improvements, as well as other conclusions and recommendations in this report, represent the opinions of the Office of Inspector General. Determinations of corrective action to be taken will be made by the appropriate Department of Education officials.

In accordance with the Freedom of Information Act (5 U.S.C. § 552), reports issued by the Office of Inspector General are available to members of the press and general public to the extent information contained therein is notsubject to exemptions in the Act.

ED-OIG/A02G0020

October 2007

Our mission is to promote the efficiency, effectiveness, and integrity of the Department’s programs and operations. / U.S. Department of Education
Office of Inspector General
New York, New York

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UNITED STATES DEPARTMENT OF EDUCATION

OFFICE OF INSPECTOR GENERAL

32 Old Slip, 26th Floor, Financial Square

New York, New York 10005

Telephone (646) 428-3860 Fax (646) 428-3868

October 9, 2007

Lucille E. Davy

Commissioner of Education

New Jersey Department of Education

Office of the Commissioner

100 River View Plaza

P.O. Box 500

Trenton, NJ 08625

Dear Commissioner Davy:

Enclosed is our final audit report, Control Number ED-OIG/A02G0020, entitled Elizabeth Public School District Allowability of Title I, Part A Expenditures. This report incorporates the comments you provided in response to the draft report. If you have any additional comments or information that you believe may have a bearing on the resolution of this audit, you should send them directly to the following Education Department official, who will consider them before taking final Departmental action on this audit:

Kerri L. Briggs

Assistant Secretary

Office of Elementary and Secondary Education

U.S. Department of Education

400 Maryland Avenue, SW

Washington, DC 20202

It is the policy of the U. S. Department of Education to expedite the resolution of audits by initiating timely action on the findings and recommendations contained therein. Therefore, receipt of your comments within 30 days would be appreciated.

In accordance with the Freedom of Information Act (5 U.S.C. § 552), reports issued by the Office of Inspector General are available to members of the press and general public to the extent information contained therein is not subject to exemptions in the Act.

Sincerely,

/s/

Daniel P. Schultz

Regional Inspector General for Audit

Enclosure

TABLE OF CONTENTS

Page

EXECUTIVE SUMMARY Error! Bookmark not defined.

BACKGROUND Error! Bookmark not defined.

AUDIT RESULTS Error! Bookmark not defined.

FINDING NO. 1 – Elizabeth Could Not Provide Adequate Support for $822,796 of Title I Expenditures Error! Bookmark not defined.

NJDOE’s Comments. Error! Bookmark not defined.

OIG Response……… Error! Bookmark not defined.

FINDING NO. 2 – Elizabeth Charged $618,392 of Unallowable Expenditures to Title I Error! Bookmark not defined.

NJDOE’s Comments.. Error! Bookmark not defined.

OIG Response……… Error! Bookmark not defined.

FINDING NO. 3 – Elizabeth Used $505,737 of Title I Funds to Supplant Non-Federal Funds Error! Bookmark not defined.

NJDOE’s Comments. Error! Bookmark not defined.

OIG Response……… Error! Bookmark not defined.

FINDING NO. 4 – Elizabeth Did Not Maintain Proper Internal Controls Error! Bookmark not defined.

NJDOE’s Comments. Error! Bookmark not defined.

OBJECTIVE, SCOPE, AND METHODOLOGY Error! Bookmark not defined.

Enclosure…………… 2

Elizabeth Public School District Final Report

Allowability of Title I, Part A Expenditures ED-OIG/A02G0020

EXECUTIVE SUMMARY

The objective of our audit was to determine if the Elizabeth Public School District’s (Elizabeth) Title I, Part A (Title I) expenditures, distributed through the New Jersey Department of Education (NJDOE), were allowable in accordance with applicable laws and regulations. Our audit period was July 1, 2004, through June 30, 2005.

We randomly and judgmentally sampled $2,289,094 of $8,265,724, in Title I funds Elizabeth expended during our audit period and found that Elizabeth did not fully comply with applicable laws and regulations. We found that Elizabeth charged $822,796 in unsupported salary and non-salary expenditures to Title I. Further, Elizabeth used $618,392 of its Title I funds for unallowable purposes. Elizabeth also used $505,737 in Title I funds to supplant non-federal funds for its after-school program. In addition, we concluded that Elizabeth did not maintain effective internal controls over its Federal funds.

We recommend that the Assistant Secretary for Elementary and Secondary Education instruct NJDOE to require Elizabeth to:

·  Provide support for the $822,796 in salary and non-salary Title I expenditures, or return the funds, with applicable interest, to the U.S. Department of Education (ED).

·  Implement procedures that provide for the proper disbursement of and accounting for Title I expenditures for teacher tutor salaries.

·  Follow the Governance Manual policies regulations bylaws[1] (Governance Manual) by requiring the return of receiving requestors (receiving reports) to the District[2] office upon receipt of goods and services.

·  Return the $12,939 for unallowable computer equipment and vendor expenditures, plus applicable interest, to ED.

·  Implement procedures to ensure the Business Office is advised of changes that may impact Federal grants.

·  Ensure that equipment purchased with Title I funds is properly labeled and used for Title I purposes.

·  Implement controls to ensure that only allowable Title I expenditures are allocated to Title I.

·  Provide support that demonstrates that Title I funds were not used by Elizabeth to supplant non-federal funds or return the $505,737 in 2004-2005 Title I funds, with applicable interest, to ED.

·  Implement internal control procedures to provide reasonable assurance that Elizabeth manages Title I in accordance with laws and regulations, including adequate segregation of duties.

·  Update the Governance Manual to include current changes to internal control procedures and ensure Elizabeth personnel adhere to procedures outlined in the Governance Manual.

We recommend that the Assistant Secretary for Elementary and Secondary Education:

·  Consider Elizabeth’s claim that it inadvertently failed to indicate in its application the option to grandfather the three non-Title I schools and determine whether Elizabeth should return the $605,453 in unallowable expenditures, plus applicable interest, to ED.

We also recommend that the Assistant Secretary for Elementary and Secondary Education instruct NJDOE to:

·  Review Elizabeth’s non-salary Title I expenditures for the period July 1, 2004, through June 30, 2005, not included in our sample to determine if the expenditures were adequately supported and require Elizabeth to return any unsupported funds with applicable interest to ED.

·  Determine the 2005-2006 Title I funds used to supplant non-federal funds that were outside the scope of our audit, and require Elizabeth to return the Title I funds used to supplant non-federal funds, with applicable interest, to ED.

We provided a draft of this report to NJDOE. We reviewed NJDOE’s response, dated August 31, 2007; however, our findings remain unchanged. In its response, NJDOE concurred with 10 of 13 recommendations, partially agreed with 2 recommendations, and disagreed with 1 recommendation. We revised two recommendations based on the comments received. We have summarized NJDOE’s comments and our response after each finding. A copy of NJDOE’s comments is attached. However, due to the voluminous number of attachments included with NJDOE’s comments, we have not included them in this enclosure. A copy of NJDOE’s comments and attachments will be forwarded, under separate cover, to the Assistant Secretary for Elementary and Secondary Education.


BACKGROUND

For the 2004-2005 school year, Elizabeth had 27 schools serving over 21,000 students. In fiscal year (FY) 2005, Elizabeth received $11.5 million in Elementary and Secondary Education Act of 1965, as amended by the No Child Left Behind Act of 2001 (ESEA) funding.[3] Of this amount, Title I accounted for $8.3 million. For the 2004-2005 school year, 15 of the 27 Elizabeth schools were approved to receive Title I funds. All schools approved for Title I funds were schoolwide programs.

Title I grants are provided through State educational agencies (SEAs) to local educational agencies (LEAs) to help ensure that all children have the opportunity to obtain a high-quality education and reach proficiency on challenging state academic standards and assessments. Eligible schoolwide schools are able to use their Title I funds, in combination with other Federal, State, and local funds (blended funds), to upgrade the entire educational program of the school and to raise academic achievement for all students. Except for some of the specific requirements of the Title I program, funds that are used in a schoolwide program may not be subject to the statutory or regulatory requirements of programs providing the funds as long as the schoolwide program meets the intent and purpose of those programs.


AUDIT RESULTS

We found that Elizabeth did not fully comply with applicable laws and regulations regarding its Title I expenditures. Elizabeth could not provide support for $822,796 in salary and non-salary expenditures. In addition, expenditures of $618,392 were unallowable and $505,737 in Title I funds were used to supplant non-federal funds. Further, we found that Elizabeth did not maintain proper internal controls in relation to obtaining and maintaining documents, proper approval of purchases, and approval of principal timecards.

FINDING NO. 1 – Elizabeth Could Not Provide Adequate Support for $822,796 of Title I Expenditures

Unsupported Salaries for Teacher Tutors

Elizabeth did not adequately support $666,681 in salaries for teacher tutors that it charged to Title I. As part of our random sample, we reviewed a journal entry for ($445,101) representing a transfer of teacher tutor salaries from Title I to Title II, Part A (Title IIA).[4] Elizabeth budgeted approximately 15 teacher tutors to Title I and 27 teacher tutors to Title IIA. However, Elizabeth could not specifically identify which teacher tutor salaries were charged to Title I and which were charged to Title IIA.

Elizabeth originally recorded all teacher tutor salaries as charges to Title I. Once the budgetary limit for Title I teacher tutors was reached, a journal entry was posted to transfer the salary overages to Title IIA. Elizabeth only transferred to Title IIA, the amount of salaries that exceeded the $666,681 budgeted to Title I. Since Elizabeth used this accounting methodology to record teacher tutor salaries, it could not identify each specific teacher tutor salary that should have been charged to Title I or IIA.

During our audit period, Elizabeth employed 43 teacher tutors, whose salaries were charged to Title I and Title IIA.[5] An Elizabeth official stated all 43 teacher tutors were employed at Title I schools. However, we found 16 of the 43 teacher tutors worked at non-Title I schools. Based on the accounting methodology Elizabeth used, there was no assurance that salary expenditures charged to Title I for teacher tutors were actually for Title I teachers. We concluded that if all teacher tutors were employed at Title I schools, then adjusting entries to the teacher tutor salary account would not have caused a questionable charge to Title I. However, because some teacher tutors worked at non-Title I schools and Elizabeth did not ensure proper disbursement of, and accounting for, Title I salaries, we could not determine whether the $666,681 charged to Title I for teacher tutors included charges for teacher tutors working at non-Title I schools. Therefore, the $666,681 in Title I salaries charged for teacher tutors was unsupported.

Unsupported Non-Salary Expenditures

Elizabeth did not adequately support $157,763[6] in non-salary Title I expenditures. Elizabeth used receiving reports to verify the receipt of goods and services. However, Elizabeth was unable to provide 16 of 48 receiving reports in our sample to support the charges for supplies, textbooks, and educational services. Of the total unsupported amount, $154,392 was from our random and judgmental samples of District Title I expenditures. We also found $3,371 of schoolwide Title I expenditures allocated to School 6[7] was unsupported. This occurred because District officials did not properly supervise school officials and enforce policies and procedures set forth in the Governance Manual for the receipt of goods and services. As a result, there was no assurance that the $156,115 of expenditures related to the goods and services were actually received.

The General Education Provisions Act [20 U.S.C. § 1232f (a)], requires each recipient of Federal funds... shall keep records which fully disclose the amount and disposition by the recipient of those funds, the total cost of the activity for which the funds are used, the share of that cost provided from other sources, and such other records as will facilitate an effective financial or programmatic audit.

Office of Management and Budget (OMB) Circular A-87 § C.1.j, states that to be allowable under Federal awards, costs must be adequately documented.

According to the ESEA § 9306 (a)(5), an applicant [Elizabeth] that submitted a plan or application for ESEA programs [Title I] would use such fiscal control and fund accounting procedures as would ensure proper disbursement of, and accounting for, Federal funds paid to the applicant under each such program.

According to the Governance Manual, the originating department should submit a signed receiving [report] to the District as a receipt for items or services received.

Elizabeth did not properly account for teacher tutor salaries in accordance with regulations. Furthermore, there was no assurance that goods and services were received. As a result, Elizabeth could not adequately support $822,796[8] in Title I expenditures.


Recommendations

We recommend that the Assistant Secretary for Elementary and Secondary Education instruct NJDOE to:

1.1  Require Elizabeth to provide support for the $822,796 in salary and non-salary Title I expenditures, or return the funds, with applicable interest, to ED.

1.2  Require Elizabeth to implement procedures that provide for the proper disbursement of and accounting for Title I expenditures for teacher tutor salaries.

1.3  Require Elizabeth to follow the Governance Manual by requiring the return of receiving reports to the District office upon receipt of goods and services.

1.4  Review Elizabeth’s non-salary Title I expenditures for the period July 1, 2004, through June 30, 2005, not included in our sample to determine if the expenditures were adequately supported and require Elizabeth to return any unsupported funds to ED.

NJDOE’s Comments

In its response to the draft report, NJDOE did not fully concur with Finding 1 and recommendation 1.1, and agreed with recommendations 1.2, 1.3, and 1.4. NJDOE reviewed subsequent information, which was also provided to the OIG, and concluded that teacher tutor salaries were supported. NJDOE stated that the teacher schedules and after-the-fact certifications were sufficient support for the $666,681 in Title I charges for teacher tutors. NJDOE noted that ED guidance issued in May 2006, stated that time and effort reporting for non-consolidated funds required semi-annual certifications and there was no similar guidance prior to May 2006 that addressed this issue in a schoolwide program.